Also more accurately referred to as aggregate expenditure,
this is one of the key concepts introduced by John Maynard Keynes that still
today is at the heart of most macroeconomic theories about the determination of the
overall level of
employment (and thus the level of national income produced) in a country's
economy during a given year. Although there have turned out to be a number of
logical problems and ambiguities in making the analogy work, Keynes's original
basic notion was that “aggregate demand” represented a sort of grand
total or summarization of all the various demand schedules for all the millions of different
goods and services produced in a country's national economy. Thus, Keynes
reasoned, just as the microeconomic theorist can fruitfully analyze
the relationship between the various quantities of a particular good or service
that will be purchased by consumers at various prices on a single market by
means of a demand
schedule or demand
curve, the macroeconomic theorist can make similarly
good use of an aggregate demand schedule or aggregate demand curve as a means
for analyzing the relationship between the various possible grand totals of all
goods and services purchased in the national economy (as measured by their total
monetary value in the form of a national product estimate like GNP or GDP) and the general
price level (as measured by some sort of comprehensive price index rather like
those whose yearly rates of change are commonly used to measure inflation). Once
he had the brainstorm that one could sum up all the demand schedules for
individual goods into a single grand total “aggregate demand
schedule,” it was not much of a mental leap for Keynes to conclude that it
might be useful first to divide up aggregate demand into a small number of
“subtotal” aggregate demand schedules whose interrelationships might
help explain such large-scale macroeconomic phenomena as the business cycle, inflation, economic growth and the
like. Thus Keynes invented most of the basic ideas of what is today the
macroeconomists' conventional system of national income accounting when he
formulated his famous aggregate demand identity

Y = C + I + G + (X - M)

which simply means that a single country's aggregate demand for national
product (Y) is always equal to the total demands of its households
for Consumer goods and services (C), plus the total demands of its
firms for Investment goods (I), plus the total demands of its various
Government agencies for goods and services (G), plus the net demands
of foreign consumers, firms and governments for the country's goods and services
(exports minus imports).